THERE are moments when the dispute between Israelis and Palestinians appears so intractable that it is tempting to call back Edward de Bono.

The lateral thinker suggested to the British Foreign Office in 1999 that the solution was obvious. Marmite. Unleavened bread contains no yeast, which means it provides no zinc, the absence of which tends to make men more belligerent. Marmite is rich in zinc and, well, you can see the historic enmity just dissolving, can't you?

The history of this conflict is an invitation to pessimism. It is hard to hear an official representative of either side without thinking better of his opponent. Images of child deaths are accompanied by a grown-up version of the playground game of "you started it; no, you started it", stretching all the way back to the Bible. There is no viable military victory to be won: until there are two negotiating parties genuinely committed to living together, the process is condemned to the depressing repetition of bomb, ceasefire, rocket-fire, war - even though the people on either side crave peace, It can seem hopeless, but in fact a counsel of despair, as well as being useless, is not appropriate. The seeds of change are visible in Gaza and the West Bank. Gradually, slowly, uncertainly, but surely the fortunes of Palestine will be changed by prosperity. The region, of course, is beset by recriminations about identity and status and no economic determinist can wish those arguments away.

Tony Blair, special envoy for the Quartet of the UN, the US, the EU and Russia, is proving quietly to be part of the solution. The latest report on the work of the Office of the Quartet Representative is full of unglamorous progress that could, in time, transform the region.

The Blair team has been more successful in moving Israel than is commonly known. Something as simple as the installation of a cargo scanner at the Allenby crossing (over the Jordan into the West Bank) could increase trade volumes by 30 per cent and reduce shipping costs by the same amount. Israeli approval was recently secured for international investment in education, health and housing and, in February 2011, permits were issued for the construction of 21 schools and health clinics.

Infrastructure is getting better. The road out of Jericho into the Jordan Valley had been blocked for a decade. Now it is open. A big investment has diverted sewage from the dangerous Beit Lahia lake, which a few years ago flooded and caused the deaths of several Palestinians. The OQR has brought in $US44 million ($42m) from the European Investment Bank to upgrade the electrical transmission network in the West Bank. The next priority is a large desalination plant in the Gaza Strip which would provide Gaza with potable water. Less than 10 per cent of the water meets World Health Organisation guidelines. Work is also under way on a Palestinian gas field in the Mediterranean Sea.

The really potent accusation against Israel has nothing to do with retaliation - why should they put up with constant rocket fire? - nor that its response is disproportionate. It is that it does far too little to help the Palestinians to grow.

It is, of course, a lot to ask that Israel should provide economic succour to those whose leaders are firing rockets at its citizens, but it would be a clever strategy all the same. Israel's part in a revised peace process should include doing as much as it can to help Gaza and the West Bank towards sustainable growth.

It is obvious that the blockade of Gaza is, in this respect as in most others, counter-productive. The blockade was imposed to stop weapons reaching the hands of militants. Clearly it is not working. The upshot of the blockade is that weapons get through and moral calumny is heaped upon Israel for the appalling state of Gaza. One third of the population lives below the poverty line. The economy is slowing, finance from donors is drying up, unemployment is running at 34 per cent and a fiscal crisis threatens to scupper whatever chance of peace remains.

The first act of the new government after the Israeli election in January ought to be to mitigate the liquidity crisis in the Palestinian National Authority by seeking new donors. Money is coming into the region: $US450m from the Abu Dhabi Development Fund in 2009, $US50m from the Kuwaiti government in 2011 and the Qataris recently made a pledge - but not enough to avoid an austerity drive that is exactly what is not needed. But the worst aspect of Israeli economic policy is that, by closing down Gaza's exports to Israel and the West Bank, the blockade is destroying the emerging independent business class. This is, over time, a tragedy.

In his excellent recent book Forces of Fortune, Middle East scholar Vali Nasr argues the great battle for the soul of the region will not be fought over religion but over business and capitalism. He describes an upwardly mobile middle class of entrepreneurs and investors who have no interest in compromising their prosperity with ideological extremism.

If the economy fails, the sensible elements in Palestinian politics - Mahmoud Abbas and Salam Fayad, respectively the President and the Prime Minister of the PNA - are weakened. There is a danger that an opportunity is slipping by unnoticed. Economic progress could be the midwife of political progress.

But as well as being an identity question, this is also a knife-and-fork question. The Egyptian revolution was a howl of anguish about unemployment. The Tunisian revolution started with the complaint of a fruit-seller about food prices. The protests in Jordan are, at root, economic.

It would simplify too much to say that if prosperity is achieved then peace must come in its wake; but in the history of bad ideas it has to be better than Marmite. And I love Marmite.